Does the SALT cap apply to property taxes on rental property?
No. Section 164(b)(6) of the tax code keeps real and personal property taxes paid in a business or income-producing activity out of the cap, so the property tax on a rental building is deducted in full on Schedule E. The cap does reach your state income tax, including the part caused by rental profit, and the personal share of property tax on a building you live in. For 2026 the cap is $40,400, reduced for income above $505,000 but never below $10,000.
What the statute says, and the cap by year
The cap on state and local tax deductions sits in 26 U.S.C. 164(b)(6). It limits the total of real property taxes, personal property taxes and income taxes an individual can take into account. Then comes the sentence that matters for landlords: the limit does not apply to taxes described in paragraphs (1) and (2) of subsection (a), meaning real and personal property taxes, which are paid or accrued in carrying on a trade or business or an activity described in section 212, the production of income.
Renting out apartments is at least an income-producing activity, so the property tax on the building goes on Schedule E line 16 and reduces rental income dollar for dollar. It never touches Schedule A or the cap.
The cap, year by year
Subsection (b)(7) sets the cap and a phase-down based on modified adjusted gross income:
| Tax year | Cap | Phase-down starts above | Floor |
|---|---|---|---|
| 2025 | $40,000 | $500,000 | $10,000 |
| 2026 | $40,400 | $505,000 | $10,000 |
| 2027 to 2029 | 101% of the prior year | 101% of the prior year | $10,000 |
| 2030 and later | $10,000 | No phase-down | Not needed |
The cap shrinks by 30% of income above the threshold. Married people filing separately get half of both the cap and the threshold.
The part that is capped: state income tax on rental profit
The exception covers only property taxes. State income tax is paragraph (3) of subsection (a), and the business exception does not mention it. So if your building earns $80,000 of profit and your state taxes that profit, the state income tax goes on Schedule A with your other state and local taxes and counts against the cap, even though the rental caused it.
Owners in high-tax states sometimes assume all taxes connected to the rental escape the cap. Only the property taxes do. Ask your tax preparer whether anything in your state changes this for your situation.
If you live in one of the units
Publication 527 says that when you rent part of a property you divide shared expenses, such as real estate taxes, as if you had two separate properties, using any reasonable method; the two most common are the number of rooms and the square footage. The rental share goes on Schedule E. The personal share is an itemized deduction, which is where the cap applies.
Example a made-up owner lives in one of six equal units and pays $36,000 of property tax on the building in 2026. By square footage, five sixths, or $30,000, goes on Schedule E in full. The other $6,000 goes on Schedule A with $22,000 of state income tax, a total of $28,000. Her modified adjusted gross income is $560,000, which is $55,000 over the $505,000 threshold, so her cap falls by 30% of $55,000, or $16,500, from $40,400 to $23,900. She deducts $23,900 on Schedule A and the full $30,000 on Schedule E.
Without the split she might have put all $36,000 on Schedule A and lost most of it to the cap, or put it all on Schedule E and overstated the rental expense.
Common mistakes with property tax on a rental
- Putting the rental building's property tax on Schedule A. It belongs on Schedule E, outside the cap.
- Deducting the escrow payment instead of the tax. The deduction is the tax the lender actually paid from escrow during the year.
- Deducting a special assessment for a sidewalk or sewer line. Section 164(c)(1) denies a deduction for taxes assessed for local benefits that tend to increase the property's value, except the part for maintenance or interest; the rest generally goes into basis.
- Deducting back taxes the seller owed that you paid at closing. Those go into basis, as covered in closing costs on a rental purchase.
How DoorKeeping keeps the two apart
Each property's LLC has its own books in DoorKeeping, and the property tax account maps to Schedule E line 16 of that building's column. The Schedule E report comes from those books, so the rental share of the tax is already in the right place. The personal share of a building you live in, and your state income tax, stay with your personal return and your preparer. DoorKeeping costs $2 per unit per month, with no other fees for owners or tenants, and does not give tax advice.
Sources
- 26 U.S.C. 164, Taxes (Cornell LII), read Oct 30, 2026
- IRS, Publication 527, Residential Rental Property, read Oct 30, 2026
Questions
- Is property tax on a rental limited by the $40,000 SALT cap?
- No. Real property taxes paid in a business or income-producing activity are outside the cap under section 164(b)(6), so they go on Schedule E in full.
- Is state income tax on rental income subject to the SALT cap?
- Yes. The business exception in section 164(b)(6) covers only real and personal property taxes, so state income tax goes on Schedule A and counts toward the cap.
- What is the SALT cap for 2026?
- It is $40,400, reduced by 30% of modified adjusted gross income above $505,000, but not below $10,000. Married people filing separately get half.